259 F. 614 | D. Nev. | 1918
(after stating the facts as above). Section 29 of the Judicial Code (Act March 3, 1911, c. 231, 36 Stat. 1095 JComp. St. §' 1011]), defining the procedure to be followed in removing causes to this court, reads as follows:
“Whenever any party entitled to remove any suit mentioned in the last preceding section, except suits removable on the ground of prejudice or local influence, may desire to remove such suit from a state court to the district court of the United States, he may make and file a petition, duly verified, in such suit in such state court at the time, or any time before the defendant is required by the laws of the state or the rule of the state court in which such suit is brought to answer or plead to the declaration or complaint of the plaintiff, for the removal of such suit into the district court to be held in the district where such suit is pending, and shall make and file therewith a bond, with good and sufficient surety, for his or their entering in such district court, leitMn thirty days from the date of filing said petition, a certified copy of the record in such suit, and for paying all costs that may be awarded by the said district court if said district court shall hold that such suit was wrongfully or improperly removed thereto, and also for their appearing and entering special bail in such suit if special bail was originally requisite therein. It shall then be the duty of the state court to accept said petition and bond and proceed no further in such suit. Written notice of said petition and bond for removal shall be given the adverse party or parties prior to filing the same. The said copy being entered within said thirty days as aforesaid in said district court of the United States, the parties so removing the said cause shall, within thirty days thereafter, plead, answer, or demur to the declaration or complaint in said cause, and the cause shall then proceed in the same manner as if it had been originally commenced in the said district court.”
The removals in the present cases have been accomplished with little reference to the above-quoted section of the Code.
Filing Petition.
The law case was commenced March 29th, the divorce case November 8th, and the equity case December 7th, all in 1917. In each of them Charles Vadner and the Basic Fund Company had filed answers prior to March 1, 1918. The Bankers’ Trust Company in the equity cas,e answered February 19, 1918. In the divorce case Vadhais had filed his answer in November, 1917. December 6, 1917, a partial' judgment was rendered in the law case, and in all three cases, after a trial at which the parties had all appeared, judgment was rendered May 3, 1918. The petitions for removal were not filed in the Utah state court until May 10, 1918. Prior to that date the equity-suit and the law case had been removed to the federal court of Utah, and remanded. An order was made in the state court consolidating the three cases, April 27, .1918. Seven days before this, Pruett, having obtained leave so to do, had filed his complaint in intervention both in the law case and in the equity case.
Filing Record.
If a proper bond and petition are filed in the state court within the time to answer, the jurisdiction of the lower court is divested; but, in the event of delay beyond the 30 days in entering the record in the federal court, it is not improper to remand the cause, if no satisfactory explanation is presented. In this instance no excuse for the delay is offered. The petitions (paragraph 13) indicate that a bond had been executed May 10th. Waverly S. & G. Co. v. Waterloo, etc., Ry. Co. (D. C.) 239 Fed. 561, 567; St. Paul & C. Ry. Co. v. McLean, 108 U. S. 212, 2 Sup. Ct. 498, 27 L. Ed. 703.
Thl Bond.
“may make and file a petition * * * for the removal of such suit into the district court to be held in the district where such suit is pending, and shall make and file therewith a bond * * * for his or their entering in such district court, within thirty days from the date of filing said petition, a certified copy of the record in such suit.”
The bond filed in the present case is conditioned, not to enter the record in the district court to be held in the district where such suit is pending, but to enter it in the United States District Court for the District of Nevada. It also binds the petitioners to enter the record,
In Missouri, K. & T. Ry. v. Chappell (D. C.) 206 Fed. 688, 694, a bond similar to the one now under consideration, conditioned under the old law to file, the record by the first day of the following term, was held insufficient to oust the jurisdiction of the state court. It was held that the suit as brought in the state court continued there, notwithstanding the attempted removal, because of the absence of a statutory bond; that in a proceeding to enter a default judgment the state court was acting within its powers, and that the federal court could not properly arrest by injunction the action of the parties in pursuing their remedies in the state court. The cause was remanded.
In Webb v. Southern Ry. Co., 248 Fed. 618, 160 C. C. A. 518, a removal bond conditioned to file the record, either in the district court for the district where the action was pending or in the district court for another district, was held to be insufficient by the Circuit Court of Appeals for the Fifth Circuit, and the judgment of the lower court holding to the contrary was reversed, with directions to remand the cause.
' I am aware there are a number of decisions which seem to establish a different rule. For example, Chase v. Erhardt (D. C.) 198 Fed. 305, and State Imp. Dev. Co. v. Leininger (D. C.) 226 Fed. 884. But in each of those cases the petition and a defective bond were presented to the state court. The bond was there approved, and an order of removal entered; but, inasmuch as the record had been filed in the proper federal court within the 30 days, the purpose of the undertaking had been accomplished before any objection was made, and as the moving party had asked permission to amend, or to file a new bond, jurisdiction was retained.
Written Notice.
Cases cited by defendants to the contrary were decided before the passage of the act requiring notice.
“No civil suit shall be brought in any district court against any- person by any original process or proceeding in any other district than that whereof he is an inhabitant; but where the jurisdiction is founded only on the fact that the action is between citizens of different states, suit shall be brought only in the district of the residence of either the plaintiff or the defendant.”
This provision was inserted to protect persons sued in the federal court from being haled into the courts of distant states for trial of civil causes. Undoubtedly Congress, in drafting section 29, intended to guard the plaintiff from efforts on the part of the defendant to harass him by moving the cause for trial to a distant district, because, perhaps in anticipation of such litigation, the defendant had taken the precaution to establish, aijd thereafter to hold, his residence and citizenship in a state widely separated from the state in which he contemplated doing business. The only removals provided for in section 29 of the Judicial Code'are removals to the United States District Court to be held in the district where such suit is pending. Although the decisions are not harmonious, the weight of authority sustains the view that the only federal court to which such a suit as those at bar is removable is the District Court for the district in which is located the state court where the suit was brought. Thomas v. Delta Land & Water Co., 258 Fed. 758, decided in this court August 31, 1918; Murdock v. Martin (C. C.) 178 Fed. 307; St. John v. United States F. & G. Co. (D. C.) 213 Fed. 685; Cincinnati, etc., Ry. Co. v. Orr (D. C.) 215 Fed. 261;, St. John v. Taintor (D. C.) 220 Fed. 457; Eddy v. Chicago & N. W. Ry. Co. (D. C.) 226 Fed. 120; Ostrom v. Edison (D. C.) 244 Fed. 228; Webb v. Southern Ry. Co., 248 Fed. 618, 160 C. C. A. 518.
In the face of so many irregularities in the removal proceedings, the three cases have no place in this court under the federal statutes providing for the removal of causes from state to federal tribunals.
The Causes Are Not Removable.
Having failed to file petitions for removal to this court until after judgment had been rendered in all three cases, it is now urged that the time to commence removal proceedings must be reckoned from the date when Pruett’s complaint in intervention was filed, April 20, 1918. Service was made on F. B. Scott, attorney for the Basic Fund Company, April 19th, and the petitions for removal were filed May 10th. Removal is claimed in each petition on the following grounds :
(1) To the greater number of parties concerned it would be most convenient to have the causes heard in the federal court for Nevada; great expense and unnecessary litigation will be avoided thereby. (Paragraphs 6 and 7.)
(3) Local prejudice. (Paragraph 8.)
(4) The controversy arises under the Constitution and laws of the United States and the Bankruptcy Act.
Convenience of Parties.
Separable Controversies.
Prior to the petition for removal these claimants had filed petitions in intervention, and consented to submit their claims for adjudication to this court.
The trustee in bankruptcy by intervening raised no new issues as against defendants. He joined the plaintiff in her demands, but as against her he claimed, and still claims, the fruits of the litigation. Clearly, whatever rights defendants had to removal as against Agnes Vadner were lost by delay. The intervention of the trustee could not revive a right already lapsed. If there was a right of removal as against the trustee, it must have accrued out of some controversy between him and one or more of the defendants. No such controversy is pointed out in either petition for removal, except those litigated with Agnes Vadncr in the state court, and there decided before removal to this court was sought. If there be such a controversy, and it be true, as alleged in both petitions, that Charles S. Vadner, Phebe Vadner, Basic Fund Company, a corporation, Charles S- Vadner and Phebe Vadner, executors of the estate of Samuel Vadner, deceased, and W. E. Pruett, trastee in bankruptcy, all reside in the city of Reno, Washoe county, Nev., the requisite diversity of citizenship is lacking. If there is a controversy between the defendants on one side, the trustee and Mrs. Vadner on the other, then one plaintiff, Pruett, and two defendants, Vadner and Phebe Vadner, are residents of the same state. Moon on Removal of Causes, §§ 133, 134.
If the Basic Fund Company is a citizen and resident of Montana, no separable controversy exists between it and Pruett, “which can be fully determined between them without the presence of any other defendant.” Ordinarily, to determine whether there is a separable controversy, the complaint is the only document to be considered. Moon on Removal of Causes, § 151; Hughes on Fed. Proc. § 120.
The only relief prayed for by Agnes Vadner or Pruett against the
In an action to set aside a conveyance to which the grantor and grantee are defendants, there is no separable controversy between plaintiff and the grantee; the grantor is a necessary party. 34 Cyc. 1274; Graves v. Corbin, 132 U. S, 571, 588, 10 Sup. Ct. 196, 33 L. Ed. 462; Moore v. North River Constr. Co. (C. C.) 19 Fed. 803; Reineman v. Ball (C. C.) 33 Fed. 692; German Sav. & L. Soc. v. Dormitzer, 116 Fed. 471, 475, 53 C. C. A. 639; Beswick v. Dorris (C. C.) 174 Fed. 502, 508; Darnold v. Simpson (C. C.) 114 Fed. 368; Huneke v. Dold, 7 N. M. 5, 32 Pac. 45, 48.
In Gaylord v. Kelshaw, 1 Wall. 81, 17 L. Ed. 612, where there was a bill to set aside a conveyance as made without consideration and in fraud of creditors, it was held that the alleged fraudulent grantor was a necessary defendant, and if his citizenship was not set forth the cause must be remanded or dismissed.
Here, Pruett, the plaintiff, and Vadner, the grantor, a necessary party defendant, are citizens and residents of the same state.
If there is a controversy between Agnes Vadner and the Basic Bund Company, Charles Vadner is a necessary party thereto. It is alleged in both petitions for removal that the Basic Bund Company resides in Reno, Nev. (paragraph 6); and also that it is a Montana corporation, and a citizen and resident of that state (paragraph 11). There is no allegation in either petition as to the residence and citizenship of Agnes Vadner. An examination of the record shows she claims to be a resident and citizen of Utah. In the petition for removal in the equity case to the Utah court, Charles Vadner, December 31, 1917, swore “that the plaintiff at the time of the commencement of said suit was, and ever since said date has been, and still is, a citizen and resident of the state of Utah, and that she has been a resident and citizen since the institution of this action of the state of Utah.” Bour days later, in his -own petition for removal of the divorce case to the Utah federal court, the said Vadner swore “that the said plaintiff at the date of the commencement of said suit (November 11, 1917) was, and still is, a citizen of the state of Massachusetts.” These conflicting statements undoubtedly explain the reason why allegations as to Agnes Vadner’s citizenship are omitted from the petitions for removal to this court.
The petitions for removal, in so far as reliance is based on a separable controversy in which the Basic Bund Company is defendant, are too late. The answers of that company were filed in the divorce case November 28, 1917, in the law case Bebruary 6, 1918, and in the equity casd Bebruary 15, 1918. An interval of more than two and a half months elapsed before May. 10th, when the petitions for removal to this court were filed. Binally, Emma Vadner in her petition in intervention filed in this court May 2, 1918, alleges that the Basic Bund Company’s interest in the Vadner Terrace and the Downing note and mortgage had been duly conveyed to her before the trial in the state court, and prior to the date of the petition alleging the existence of such separable controversy.
“Where a suit is now pending, or may hereafter be brought, in any state court, in which there is a controversy between a citizen of the state in which the suit is brought and a citizen of another state, any defendant, being such citizen of another state, may remove snch suit into the district court of the United States for the proper district, at any time before the trial thereof, ivhen it shall he made to appear to said district court that from prejudice or local influence he toill not he able to obtain justice in such state court, or in any other state court to which the said defendant may, under the laws of the state, have the right, on account of such prejudice or local influence, to remove said cause.”
A petition for removal on this ground may be presented to the federal court in the first instance. It should be accompanied by an affidavit setting out the facts from which the existence of prejudice or local influence will be inferred.
As said in Re Pennsylvania Co., 137 U. S. 451, 457, 11 Sup. Ct. 141, 143 (34 L. Ed. 738), the court “must be legally (not merely morally) satisfied of the truth of the allegation that, from prejudice or local influence, the defendant will not be able to obtain justice in the state court.”
The allegation of the verified petition in this case is as follows:
“Petitioners further allege that because of local prejudice your petitioners have been denied the equal protection of the law, the right of due proeess of law, and the right to legal notice as provided for by law, of the pendency of the petition of intervention of W. 13. Pruett, trustee aforesaid.”
In the petition on removal it is not even alleged that the prejudice is of such a character as to prevent defendants from having a fair trial. There is nothing in the record tending in any manner to show that the state court refused to permit defendants, or any of them, to he served with notice of the pendency of Pruett’s petition in intervention.
The Compiled Laws of Utah 1907, § 2925, declare that intervention is made by plaintiff “setting forth the grounds upon which the intervention rests, filed by leave of the court and served upon the parties to the action or proceeding who have not appeared, and upon the attorneys of the parties who have appeared.”
It is not shown that it was the duty of the court to cause Pruett’s petition to be served or notice thereof to be given. If Pruett, a citizen of Nevada, and the trustee appointed in this court, failed to serve his complaint in intervention, in the absence of an explanation it is difficult to understand how it evinces prejudice or local influence in Utah. Furthermore, the certified copies of' Pruett’s complaint in intervention included in the record of each case are indorsed as follows: “Copy received this 19th day of April, 1918. F. B. Scott, Attorney for Basic Fund Company.” On the following day each complaint was filed in the office of the clerk of the state court.
In the findings in the consolidated cases, it is recited that Scott
Where removal is sought on the ground of prejudice and local influence, the state court does not lose jurisdiction until an order is filed therein from the federal court directing the removal. Needless to say no such order has yet been filed. Pennsylvania Co. v. Bender, 148 U. S. 255, 13 Sup. Ct. 591, 37 L. Ed. 441; Tod v. Cleveland, etc., Ry. Co., 65 Fed. 145, 149, 12 C. C. A. 521.
Federal Question.
“arises under the Constitution and laws of the United States and the act of Congress, wherein the rights of the respective parties are to be determined under the bankruptcy act of the United States; that the trustee in bankruptey aforesaid is an officer of the court of the United States; and that the due and regular administration of the Bankruptcy Act, and the rights of the said W. E. Pruett, trustee in bankruptcy aforesaid, under the said Bankruptcy Act, and the property of said bankrupt, and the rights of claimants thereto', is involved in the above action.” Petition, par. 8.
The provision of the Removal Act invoked is contained in section 28 of the Judicial Code, and is as follows:
“Any suit of a civil nature, at law or in equity, arising under the Constitution or laws of the United States, or treaties made, or which shall be made, under their authority, of which the District Courts of the United States are given original jurisdiction by this title, which may now be pending or which may hereafter be brought, in any state court, may be removed by the defendant or defendants therein to the district court of the United States for the proper district.”
It is well settled that a suit arises under the Constitution and laws of the United States, within the meaning of the foregoing statute, only when the plaintiff’s statement of his own cause of action shows that it is based on that Constitution or those laws. Spencer v. Duplan Silk Co., 191 U. S. 526, 24 Sup. Ct. 174, 48 L. Ed. 287; Austin v. Gagan (C. C.) 39 Fed. 626, 5 L. R. A. 476.
If it does not so appear, and the defendant has such a defense, he may ultimately bring it before the Supreme Court of the United. States by setting it up in the state court; and if it be properly urged, and thereafter denied by the highest state court, it may then be brought to the attention of the Supreme Court of the United States on writ of error.
The defendant cannot, by allegations in his answer or petition supplementing the complaint, show a federal question which will entitle him to removal.
It must necessarily follow that one who has been sued in a state court cannot thereafter in such pending suit raise a federal question by filing a voluntary petition in bankruptcy which will entitle him to a removal.
A federal question which will confer jurisdiction on a United States court by removal must be a question of law, not of fact; it must be a dispute as to the construction of the statute, or of some constitutional or treaty provision.
When a federal question has been decided by the Supreme Court of the United States it ceases to be a federal question within the meaning of the removal statute. Myrtle v. Nevada C. & O. Ry. Co. (C. C.) 137 Fed. 193.
Tested by these principles, plaintiff’s pleadings disclose no right of removal on this ground. In her complaint she seeks to recover a divorce from Vadner, alimony, moneys had and received, money due on a judgment for separate maintenance, and the cancellation of alleged fraudulent conveyances. In his answers the defendant sets up judgment of divorce rendered in favor of Vadner by a Nevada court. If the Utah court failed to give full faith and credit to the Nevada judgment, the remedy was not by removal to this court, but by appeal to the Supreme Court of Utah, and thence, in the event of an adverse decision on the federal question, if there be one, by writ of error to the Supreme Court of the United States.
Bankruptcy as a Ground for Removal.
Defendants argue that the trustee cannot ask the removal of these cases to the state court, and cite in support of that proposition the decision of Judge Seaman in Re Hadden Rodee Co. (D. C.) 135 Fed. 886.
The trustee is not seeking’to remove cases from this court to the Utah state court; his position is that cases pending in that court, neither removable nor properly removed here, should be remanded.
To say that a cause in which the trustee is a party cannot be remanded after removal to this court because the trustee cannot ask it is equivalent to saying that the removability of such causes, and the jurisdiction of this court over them, is controlled by the parties opposed to the trustee.
The language quoted by counsel himself from the decision of Chief Justice Waite in Insurance Co. v. Pechner, 95 U. S. 183, 24 L. Ed. 427,
“This right of removal is statutory. Before a party can avail himself of it he must show upon the record that his is a case which comes within the provisions of the statute,”
—is apt in this connection. The question is whether the defendants have shown upon their record a right of removal. Until they do, the right to remove does not exist. Removal is a matter of grace, not of right, and the party who seeks to avail himself of the privilege must bring his case within the terms of the statute.
In the Hadden Rodee Co. Case, supra, there was no suit, at law or in equity, pending anywhere. The Merchants’ & Miners’ Bank filed a petition with the referee in bankruptcy, claiming certain shares of mining stock, which the custodian refused to surrender without the consent of the trustee. Judge Seaman was evidently of the opinion that the stock was in the possession or control of the trustee, and very properly held that it was not a controversy at law or in equity within the meaning of section 23 (Comp. St. § 9607), but a proceeding in bankruptcy, and overruled objections to hearing it as such a proceeding in the bankruptcy court. This authority is not in point, because it presents a matter which was clearly cognizable in the bankruptcy court as a bankruptcy proceeding. The cases now at bar were controversies at law and in equity as distinguished from proceedings in bankruptcy. The proposition that “trustee bringing suit in any state court it may be- transferred to the district court” needs to be qualified by the further language of the text cited in its support, “If the necessary jurisdictional requisites exist.” The trouble here is the absence of the necessary jurisdictional requisites.
Similar petitions for stay were asked subsequently by the Basic Fund Company, the estate of Samuel Vadner, Emma Vadner, and Phebe Vadner.
Prior to the first of these petitions, Mr. Poujade, referee in bankruptcy, had made an order directing and authorizing the trustee, W. E. Pruett, to intervene in said suits, “and to employ any competent and available attorneys of Salt Bake City to take such action in intervention in the pending cases as may be necessary to recover any assets belonging to the estate of the bankrupt.” It was also provided in that order that the reasonable and just allowances for services and expenses of such attorneys “might hereafter be allowed to them out of any property or proceeds realized from the intervention above authorized, and not otherwise.” This order of the referee being approved by this court, it was ordered May 9, 1918—
“that Agnes R. Vadner be, and she hereby is, enjoined from taking any steps or proceedings in any court in Utah to reduce to her possession or control or to give her any preference or lien on any of the assets of the bankrupt in Utah, * * * but * * * she shall, have the privilege of taking such action * * * as she may desire to sustain and protect the judgment rendered in the Third judicial district court in and for Salt Lake county, state of Utah, on May 3d, 1918, in which she was a party. The court reserves the right to further consider and direct what shall be done * * * relative to the assets of the bankrupt in Utah and the case hereinbefore referred to.”
This conclusion was arrived at after taking into consideration the following facts:
(1) Trustee Pruett was then in possession of no funds with which to prosecute independent suits for the recovery of property in Utah, alleged to have been fraudulently transferred by Charles Vadner.
(2) According to the bankrupt’s schedule, Vadner’s indebtedness amounted to $10,147.25, of which all but $37.25 was admitted to be due to Agnes Vadner, the plaintiff in the suits in the state court.
(3) None of the property alleged to have been fraudulently conveyed is listed among the bankrupt’s assets in the said schedule.
(4) None of the persons asking the stay are shown by the schedule to be creditors of the bankrupt.
(5) All of the persons asking a stay were or had been interested in defeating Agnes Vadner’s efforts to set aside the alleged fraudulent conveyances, and, with the exception of Emma Vadner, were parties to the actions in the state court.
(6) It was announced by counsel for petitioners in open court that, unless such an order was speedily issued, actual trials in the state court would be had.
The power of a court of bankruptcy to stay proceedings pending in a state court is given by, and limited in, section 11 of the Bankruptcy Act (Comp. St. § 9595), which reads as follows:
“(a) A suit which is founded upon a claim from which a discharge would he a release, and which is pending against a person at the time of the filing of a petition against him, shall he stayed until after an adjudication or the dismissal of the petition; if such person is adjudged a bankrupt, such action may he further stayed until twelve months after the date of such adjudication, or; if within that time such person applies for a discharge, then until the question of such discharge is determined.-
“(b) The court may order the trustee to enter his appearance and defend any pending suit against the bankrupt”
This section confers no authority to withdraw or remove causes from the state court. The authority to stay only covers those suits from which a discharge in bankruptcy would be a release. If the suit is not based on a claim for which a discharge would be a release, then it may proceed to judgment. Brandenburg on Bankr. § 1048.
During the interval which elapses after petition filed and before adjudication or dismissal, the application to stay must be granted. The language is mandatory. After adjudication, whether a stay shall be granted is discretionary with the court.
In the present case no application for a stay was made until long after the adjudication. The bankrupt, Vadner, therefore, was not entitled to a stay as a matter of right. Rogers v. Abbot, 206 Mass. 270, 92 N. E. 472, 138 Am. St. Rep. 394, 397; Rosenthal v. Nove, 175 Mass. 559, 56 N. E. 884, 78 Am. St. Rep. 512.
In the absence of any order to that effect from the bankruptcy court, the Utah state court was not bound to discontinue proceedings on suggestion that one of the defendants had been adjudged a bankrupt; it was at liberty to proceed with the causes to judgment. This would be true even though the claim, and the judgment which might be rendered thereon, would be released by discharge in bankruptcy.
In paragraph “b” of section'll the court is empowered to authorize the trustee to enter his appearance and defend any pending suit against tire bankrupt. In section 63a (Comp. St. § 9647) debts of the bankrupt may be proved and allowed against the estate—
“which, are * * » (5) founded upon provable debts reduced to judgments after the filing of the petition and before the consideration of the bankrupt’s application for a discharge.”
“(b) Unliquidated claims against the bankrupt may, pursuant to application to the court, be liquidated in such manner as it shall direct, and may thereafter be proved and allowed against the estate.”
The fact that the trustee may be ordered to appear and defend actions in the state court, that judgments rendered in the state courts
In the Buchanan Case, 219 Fed. 492, 135 C. C. A. 204, creditors, prior to bankruptcy, had commenced four suits in the New York state courts to reach that portion of the income of certain trust funds which was in excess of what was necessary for the bankrupt’s support. When the involuntary petition was filed these suits were stayed; after adjudication the stay order was vacated. The Circuit Court of Appeals held that it was not improper for the bankruptcy court to allow these suits to be prosecuted to judgment, as this would be a convenient way of liquidating the creditors’ claims, the amount of which was in dispute. It was further provided that the prosecution of the suits beyond judgment could not be permitted.
In Re Klein (D. C.) 97 Fed. 31, an action in the state court was stayed by the federal court in order to enable the creditors after adjudication to choose a trustee, and to give him time to intervene for the protection of whatever rights the general creditors might have in the funds then in the hands of the receiver appointed by the court. This restraining order was continued for five days for that purpose, and then dissolved.
In Atkins v. Globe Bank & Trust Co. (Ky.) 124 S. W. 879, within four months before Atkins was adjudged a bankrupt a number of suits were brought by creditors, seeking to avoid conveyances made by Atkins to members of his family in fraud of creditors. It was held that the trustee had the right, when so authorized by the bankruptcy court, to be substituted as plaintiff in any suits brought by creditors oí the bankrupt in the state court for the purpose of recovering the property fraudulently conveyed, by the bankrupt, and to the proceeds of which the trustee was entitled. The trial court had refused to permit such a substitution, but did not undertake to dispose of the property recovered. The Supreme Court directed the lower court to order the proceeds to be paid over to the trustee in bankruptcy, to be administered as a part of the bankrupt’s estate in the bankruptcy court.
Section 64b of the Bankruptcy Act (Comp. St. § 9648) impliedly recognizes the right of a creditor to begin or maintain such a suit for the benefit of the estate, either before or after the petition, by providing that such a creditor shall be repaid out of the bankrupt estate his reasonable expenses so incurred. Collier on Bankr. (11th Ed.) p. 1001; Frost v. Latham & Co. (C. C.) 181 Fed. 866, 868.
Jurisdiction or the Bankruptcy Court.
This proposition is inadmissible under the Bankruptcy Act. The
In United States Fidelity Co. v. Bray, 225 U. S. 205, at page 217, 32 Sup. Ct. 620, at page 625 (56 L. Ed. 1055), the court says:
“The jurisdiction of the bankruptcy courts in all ‘proceedings in bankruptcy’ is intended to be exclusive of all other courts, and that such proceedings include, among others, all matters of administration, such as the allowance, rejection, and reconsideration of claims, the reduction of the estates to money and its distribution, the determination of the preferences and priorities to be accorded to claims presented for allowance and payment in regular course, and the supervision and control of the trustees and others who are employed to assist them.”
That the exclusive jurisdiction of the bankruptcy court does not extend to all suits, at law or in equity, affecting a bankrupt’s estate, is apparent from section 23, which provides that the district court—
“shall have jurisdiction of all controversies at law and m equity, as distinguished from proceedings in bankruptcy, between trustees as such and adverse claimants concerning the property acquired or claimed by the trustees, in the same manner and to the same extent only as though bankruptcy proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants.
“(b) Suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant, except suits for the recovery of property under section sixty, subdivision b; section sixty-seven, subdivision e; and section seventy, subdivision e.”
It should be noted that section 23 covers all controversies, at law and in equity, concerning property acquired or claimed by the trustee. Sections 60b, 67e, and 70e (Cómp. St. §§ 9644, 9651, 9654) relate not to property which the trustee has acquired, but to such property as he claims and seeks to recover. These sections provide for the recovery of property fraudulently or preferentially transferred, which should be restored to the estate of the bankrupt and applied to the payment of his debts. In each section, for the purpose of recovery, it is provided that the court of bankruptcy and “any state court which would have had jurisdiction if bankruptcy had not intervened shall have concurrent jurisdiction.”
Obviously, suits for the recovery of fraudulently or preferentially conveyed property of the bankrupt in the possession of third parties claiming adversely are not proceedings in bankruptcy, but controversies at law or in equity. Neither do they come within the provisions of section 11, authorizing a court of bankruptcy to'stay a pending suit against a bankrupt upon a claim from which a discharge in bankruptcy would be a release. In re United Wireless Telegraph Co. (D. C.) 192 Fed. 238; Frost v. Latham & Co. (C. C.) 181 Fed. 866; Parker v. Black (D. C.) 143 Fed. 560; Bunch v. Smith, 116 Tenn. 201, 93 S. W. 80.
Section 17, subd. (1) (Comp. St. § 9601), provides that:
*639 ‘A discharge in bankruptcy shall release a bankrupt from all his provable debts except such as * * * are * * * for alimony due or to become due, or for maintenance or support of wife or child.”
Such a suit, therefore, pending in a state court, cannot be stayed subsequent to adjudication, under section 11, because it is not a provable debt. Collier on Bankr. (11th Ed.) p. 439 ; 7 Corpus Juris, pp. 300, 399.
Provable debts are defined in section 63 as follows:
“(a) Debts of the bankrupt may be proved and allowed against his estate which are (1) a fixed liability, as evidenced by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him; * * * (2) due as costs taxable against an involuntary bankrupt who was at the time of the filing of the petition against him plaintiff in a cause of action which would pass to the trustee and which the trustee declines to prosecute after notice; (3) founded upon a claim for taxable costs incurred in good faith by a creditor before the filing of the petition in an action to recover a provable debt; (4) founded upon an open account, or upon a contract, express or implied; and (5) founded upon provable debts reduced to judgments after the filing of the petition and before the consideration of the bankrupt’s application for a discharge. * * *
“(b) Unliquidated claims against the bankrupt may, pursuant to application to the court, be liquidated in such manner as it shall direct, and may thereafter he proved and allowed against the estate.”
The three actions brought by Agnes Vadner were pending in the state court for a considerable time prior to the date when Vadner filed his petition in bankruptcy. Prior to that time they could not have been characterized as proceedings in bankruptcy; they were controversies at law and in equity; their essential nature was not changed in any respect by Vadner’s petition.
As to suits based on claims from which a discharge in bankruptcy would operate as a release after adjudication, it is discretionary whether a stay shall be ordered by the bankruptcy court. The action to recover the Vadner Terrace and the interest in the Downing note and mortgage are not claims from which a discharge will be a release. The same is true of the action for divorce. The Utah state court had possession of the property sought to be recovered, acquired, not from the bankrupt, but from persons holding it adversely, under claim of title, from a date long prior to petition in bankruptcy. It has decided that it has jurisdiction over the persons of the defendants, and has determined issues presented in the three cases. That it should do so, and not be interfered with in so doing, is in harmony with the rule of comity. In order to avoid conflict between courts of coequal or concurrent authority, the court first acquiring jurisdiction will be allowed to pursue it to the end, provided it does not invade the exclusive jurisdiction of the bankruptcy court, and provided, further, that the cause is not removable or properly removed. In re Schmidt (D. C.) 224 Fed. 814; Davis v. Planters’ Trust Co. (D. C.) 196 Fed. 970; Collier on Bankr. p. 35.
It is argued that inasmuch as the bankrupt could not have instituted an action to set aside a conveyance made by himself for a fraudulent purpose, the Utah state court could not retain jurisdiction after the intervention of the trustee in bankruptcy, because under section 23 a
This argument is without merit. It confuses jurisdiction or the power to decide with the principles on which the decision shall be made. If sound, it would be destructive of the power of the trustee to recover by suit any property fraudulently transferred by the bankrupt, because it would apply to all courts. If the bankrupt before bankruptcy had brought such an action, the court would have taken jurisdiction, and thereafter decided against him, because his participation in the fraud precluded relief. Frost v. Latham & Co. (C. C.) 181 Fed. 866, 869; Burnett v. Morris Mercantile Co. (D. C.) 91 Fed. 365.
Furthermore, the three actions now under consideration have not been stayed. Pruett, the trustee in bankruptcy, by direction of the referee, intervened in the actions in the state court; it was then the duty of that court to proceed to a determination of the questions before it. To what purpose is its concurrent jurisdiction in certain controversies recognized by the Bankruptcy Act, and the power to stay pending proceedings restricted, if its judgments, even though they do not invade the sphere of bankruptcy proceedings, are, nevertheless, to be disregarded, and a retrial had in the court of bankruptcy?
If in entering a decree of divorce, or deciding that the Vadner Terrace and the Downing note and mortgage were fraudulently transferred, the court erred, the appellate courts of Utah are the proper tribunals, to which defendants should resort for relief. This court is in no sense a court of review.
The petitions of the Basic Fund Company, Phebe Vadner,. Phebe Vadner and Charles S. Vadner, as executors of the last will and testament of Samuel Vadner, deceased, to intervene in the bankruptcy proceedings in order to relitigate the validity of said transfers by the bankrupt to them, and also to retry Agnes Vadner’s cause of action for a divorce, must be denied; as to them, the cases are pending in the Utah state court.
Agnes R. Vadner will be permitted to enforce the lien given to her in the judgment for separate maintenance and alimony, rendered Sep-' tember 24, 1915, by the Third judicial district court in and for the county of Salt Lake, state of Utah. By that judgment she was awarded $125 a month for the support of herself and her children; it was rendered more than four months prior to the bankruptcy proceedings, and made a lien on the Downing note and mortgage. This lien was created by the express language of the judgment, and in pursuance of the judgment the note and mortgage were lodged with the clerk of the state court. Such a claim is not regarded as arising from any contract' or business transaction, but from the marriage relation — from the legal, moral, and natural duty of a husband to support his wife and children. While it is subject to modification by the court in which it was made, it is not a debt from which a discharge in bankruptcy is a release; consequently proceedings to enforce that judgment and lien will not be stayed. Bankr. Act, § 17; Collier on Bankr. p. 430; Brand
As to Agnes .R. Vadner’s lien on the Vadner Terrace, recognized and defined in the judgment rendered in said state court December 4, 1917, and in the subsequent judgment of May 3, 1918, I am unable to regard it otherwise than as a lien created within four months prior to the filing of the bankrupt’s petition. The motion for an order restraining Agnes R. Vadner from foreclosing this lien, or selling the Vadner Terrace, under any process or order of sale issued or issuing out of said Utah state court in any of the three actions under consideration, must be granted, and the order to that effect heretofore made will remain in full force and effect until further order of this court. The trustee, W. E. Pruett, however, is hereby directed to secure possession of the two-thirds interest in the Vadner Terrace mentioned in said equity suit No. 24286, and to make proper application therefor to said Utah court, and to its receiver, A. T. Moon. He is also authorized to intervene in any suit which Agnes Vadner has initiated, or may initiate, to foreclose her lien above mentioned against the Downing note and mortgage, and to take any other steps needful to secure for the estate of the bankrupt the residue of said note and mortgage, after satisfying Mrs. Vadner’s lien and the lien of the Bankers’ Trust Company.
The motion to remand the three cases numbered 21414, 22981, and 24286 is granted.
The Utah state court has decided that the Downing note and mortgage, as well as a two-thirds interest in the Vadner Terrace, belong to the bankrupt estate, which is worth about $50,000. According to the schedule of the bankrupt, substantially all his indebtedness is owing to his former wife, Agnes R. Vadner. The litigation considered in the foregoing opinion has for its purpose a' settlement of the property rights of Charles and Agnes Vadner. Neither is entitled to all the property to the exclusion of the other; both have rights which the courts will endeavor to protect. Their differences should be settled between themselves, and that speedily, if either expects to save anything out of the estate.
